Lee Chang-yong: "Deposits Are Not a Stable Source of Funding... Must Prepare for Deposit Withdrawal Crisis"

Lee Chang-yong, Governor of the Bank of Korea, is speaking at the Governor Seminar of the Asian Development Bank (ADB) Annual Meeting held on the 3rd in Songdo, Incheon. (Photo by Bank of Korea)

Lee Chang-yong, Governor of the Bank of Korea, emphasized that "deposits are no longer a stable source of funding" and that "due to the development of digital banks, we must prepare for rapid deposit withdrawal incidents."

Governor Lee made these remarks on the 3rd at the Asian Development Bank (ADB) Annual Meeting Governors' Seminar held in Songdo, Incheon.

In addition to Governor Lee, the seminar was attended by Sri Mulyani Indrawati, Minister of Finance of Indonesia; Nils Annen, German Minister of Foreign Affairs; Nirmala Sitharaman, Minister of Finance of India; Masatsugu Asakawa, President of ADB; and others.

Governor Lee stated, "There may be foreign exchange pressures and risks of capital outflows due to additional tightening, but the impact will be less than last year," adding, "because the tightening in advanced countries is almost at the final stage."

He explained, "It will be different from last year when the US raised rates consecutively by 75 basis points (1bp = 0.01 percentage points), but since high interest rates may last long, we need to be prepared."

Governor Lee noted, "The impact of instability in advanced countries' banking sectors was not significant in Asia," but added, "At the same time, what we need to pay attention to is that deposits are no longer a stable source of funding. This can be seen from the bankruptcy of the US Silicon Valley Bank (SVB)."

He said, "Because digital banks have developed better, we must prepare for rapid deposit withdrawal incidents," and added, "There are also tasks remaining for the non-bank sector."

Governor Lee evaluated that the responses of various countries to the instability in the US financial sector, including the SVB bankruptcy, were appropriate.

He said, "If the US financial authorities had delayed their response, the situation would have worsened significantly," adding, "In some respects, I think they responded well, and the current situation seems much more stable."

Lee Chang-yong, Governor of the Bank of Korea, is speaking at the Governor Seminar of the Asian Development Bank (ADB) Annual Meeting held on the 3rd in Songdo, Incheon. (Photo by Bank of Korea)

Regarding South Korea's successful development model, which rapidly grew from an ADB recipient country in the 1970s to a donor country in the 2000s, he said, "Unfortunately, Korea's case is considered rare. Having worked at ADB and IMF (International Monetary Fund), it is difficult to find many success stories in development history.

He added, "Therefore, I think we should express gratitude to the previous generation. While we cannot say there was zero corruption, compared to other low-income countries, there was little corruption, and the early adoption of sound macroeconomic policies was effective."

He continued, "In other developing countries, capital outflows may occur at low stages of development, but in the past, the Korean government strictly managed capital outflows, which led to infrastructure development using savings."

Governor Lee added, "Also, financial support from institutions like ADB and the high quality of education and civil servants were secrets to (rapid growth)."

This content was produced with the assistance of AI translation services.